Most of us know we should be saving money and investing.
But when it comes to actually doing it, people tend to fall into two camps: non-planners and planners. Non-planners typically save when they can, perhaps putting a small amount into KiwiSaver while paying down their mortgage, hoping that everything will work out in the long run. Planners generally know what they're saving for, how much they need to put away, and how long it will take them to reach their goals.
A holistic financial planner will help establish where you currently are on your financial journey and where you want to be in future. From there, it becomes a case of reverse engineering a plan to ensure you can reach your goals and continue to live life on your terms. They’ll help bring all the financial pieces together, including (but not limited to) advice on various assets such as cash, KiwiSaver, property, individual stocks, and investment portfolios.
Some of the most common questions or concerns that are voiced by our clients are:
Do I have enough equity in my home to buy an investment property?
Should I buy another property?
Is it a good time to invest?
I’ve just come into some cash—what should I use it for?
I want to start investing but I’m not sure where to start.
We earn good money but we’re still living week to week.
Should I increase my KiwiSaver contributions or home loan repayments—what's the better option?
I’m not sure if we will have enough capital for retirement.
How do I pay down my mortgage faster?
In the rush of daily life, planning for anything more than a few days in advance can seem like a headache. It's natural to wonder: Does financial planning really help? Here are five reasons why we think it does.
1. A written financial plan increases confidence.
The 2021 Schwab Modern Wealth Survey found that 65% of people with a written financial plan say they feel financially stable, while only 40% of those without a plan feel the same level of comfort. Additionally, 54% of those with a financial plan felt "very confident" they would reach their financial goals, compared with only 18% of those without a financial plan.
Having a written financial plan gives you a measurable goal or goals to work toward. Because you can track your progress, you can reduce doubt or uncertainty about your decisions and make adjustments to help overcome obstacles that could derail you.
2. A financial plan can jumpstart savings, even with a small amount of money.
The most common reason for not having a financial game plan is "I don't have enough money." This is a misconception. Planning, even in small steps, doesn't require large sums of money to start. In fact, financial planning can have a profound impact on lower-income households by helping people improve their saving and budgeting habits. A written plan helps savers prioritise their goals and, as mentioned earlier, provides a way to gauge success.
3. A financial plan can help you create an investment portfolio.
Your financial plan can give you the full lay of the land: You'll know what your goals are, how much time you have to reach them, and how comfortable you are with risk. Once you have a comprehensive view, you can figure out how to reach each individual goal.
That will involve both saving - setting aside money you'll need in the short term or for emergencies - as well as investing, which is setting aside money you'll need in the long term and that, ideally, can grow. Using your financial plan as a roadmap, you'll be better able to make thoughtful investing decisions—instead of heading out without a sense of direction and just hoping for the best.
4. A financial plan can lead to better habits and will keep you accountable.
Financial planning isn't just about investing; it's about what money can do for your confidence, security, and quality of life - such as the protection that life insurance offers or the peace of mind that an emergency fund can provide. Research also shows that planning supports sound money habits as well.
5. Planning can be tailored to every personality type
Your approach to life can influence every decision you make, including those that involve your finances. By understanding the type of person you are with regard to planning, you can take proper steps toward reaching your financial goals.
Here are six types of financial planning personalities:
Organiser: Organisers love lists. Categorising and arranging everything from their sock drawer to their personal finances gives them a warm, fuzzy feeling.
Architect: Architects are masters of both creativity and logic. They not only imagine the future but design solutions to make it happen.
Philosopher: Taken from the Greek word meaning "lover of wisdom," philosophers enjoy thinking about and solving problems.
Dreamer: Dreamers are the free spirits of our world who shake their head in confusion at all those who schedule their lives to the last detail.
Improviser: Improvisers are typically quite self-sufficient with a deep desire for independence and doing things their own way.
Maverick: Mavericks are unafraid and unapologetic individuals who would rather reshape their world than try to fit in it.
A financial plan may sound like a chore. But for successful investors, it's the foundation on which to build, understand and achieve your goals. Having a written plan can increase confidence and result in more constructive financial behaviour. However, the potential value of financial advice may vary based on the nature of the planning engagement. Longterm, working with a holistic financial planner will yield better results than working with a transactional planner.
We understand financial products and services can create a lot of confusion. Please reach out to us here or give us a call on 0800 346 765 if you’d to discuss your wealth planning requirements with one of our qualified financial advisers.
This article is for informational purposes only and should not be considered as financial advice. It is always recommended to consult with a qualified financial professional before making any financial decisions based on your individual circumstances.